Gold extends record rally on dollar weakness, rate-cut bets

© Reuters. Employees cast ingots of 99.99 percent pure gold during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, January 31, 2023. REUTERS/Alexander Manzyuk/File Photo

By Anushree Ashish Mukherjee

(Reuters) - Gold prices extended their record run on Tuesday, holding firm above the key $2,500 level, driven by a weaker dollar and growing investor confidence that the Federal Reserve will likely cut interest rates in September.

Spot gold rose 0.3% to $2,510.35 per ounce by 01:44 p.m. ET [1744 GMT], after hitting an all-time high of $2,531.60 earlier in the session.

U.S. gold futures settled 0.4% higher at $2,550.6.

The dollar index sank to a seven-month low, making gold more attractive for other currency holders, while benchmark U.S. 10-bond yields slipped. [USD/] [US/]

"The primary drivers of the gold price move are financial investment demand, particularly with ETF buying improving and overall improved sentiment as the expectations of Fed easing cycle to begin in September," said Aakash Doshi, head of commodities, North America at Citi Research

Gold could reach $3,000 per ounce by mid-2025 and $2,600 by the end of 2024, Doshi added.

Holdings of SPDR Gold Trust GLD (NYSE:GLD), the world's largest gold-backed exchange-traded fund, jumped to their highest in seven months at 859 tons on Monday. [GOL/ETF]

Markets are pricing in about a 71.5% chance of Fed cutting interest rates by 25 basis points in September, according to the CME FedWatch Tool.

Traders will be closely monitoring the minutes of the Fed's July policy meeting on Wednesday and Fed Chair Jerome Powell's keynote speech at the Jackson Hole symposium at the end of the week for more cues on rate cuts.

Positioning in gold might be overextended, with expectations of significant Fed rate cuts possibly leading to a correction if this narrative is challenged, said Daniel Ghali, commodity strategist at TD (TSX:TD) Securities.

Gold, which tends to thrive in a low-interest-rate environment, has risen more than 20% so far this year and heading for the best year since 2020.

"Geopolitical uncertainties, the rise in speculative interest, and substantial global ETF inflows are further fueling the bullish trend in gold," said Joseph Cavatoni, market strategist at World Gold Council.

Elsewhere, spot silver fell 0.2% to $29.42 per ounce, platinum eased 0.5% to $949.05 and palladium fell 0.5% at $927.00.